## 1ngaea2020001 — EXECUTIVE SUMMARY

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### Context and request for IMF support
- COVID-19 is severely impacting economic activity in Nigeria, compounded by a sharp fall in international oil prices and reduced global demand for Nigeria’s oil products.
- Oil and export impacts:
  - Oil and gas exports represent "84 percent of total exports" and are expected to fall by "more than $26½ billion."
- Growth and financing request:
  - Economy projected to contract by "almost 3½ percent in 2020" (also reported as "−3.4 percent" in projections).
  - Authorities requested financial assistance under the IMF’s Rapid Financing Instrument (RFI) exogenous shock window of "SDR 2454.5 million, equivalent to 100 percent of quota" for budget support. Staff supports this request.
- Timing and program design:
  - High uncertainty on duration and scale of COVID-19 implies an upper credit tranche (UCT) quality program cannot be quickly put in place.

### Macroeconomic developments and outlook
- Pre-COVID-19 performance and vulnerabilities:
  - Growth averaged "2.3 percent in 2019".
  - International reserves had fallen to "$36.7 billion by January 2020 (about 50 percent of the Fund’s ARA metric + oil buffer)."
  - Overall federal government (FG) deficit widened to "4.8 percent of GDP in 2019"; debt-to-GDP ratio reached "29 percent of GDP in 2019."
  - Interest payments to federal government (FG) revenue ratio remained about "58 percent (21 percent at consolidated government level)."
  - Banking system: NPL ratio halved to "6 percent in 2019"; solvency ratio fell by "0.7 percentage points to 14.6 percent at end-2019."
- COVID-19 impact and market reactions:
  - Domestic containment: border closures and lockdowns of Lagos, Ogun State and Abuja.
  - Non-oil, non-agricultural economy represents "65 percent of GDP."
  - By end-March, foreign portfolio holdings decreased by "46 percent since the beginning of the year and by almost 60 percent since mid-2019."
  - Official exchange rate adjusted by "17½ percent"; I&E window broadly unified with other windows.
  - Spreads widened: credit default swaps and 30-year Eurobond yields up by "700 and 600 basis points, respectively."
  - Gross international reserves: "$34 billion as of end-March 2020" (also reported as "$36.0" and "25.3" in table comparisons).

- Key 2020 macro projections and indicators (pre-/post-COVID comparisons in source):
  - Real GDP (at 2010 market prices): "2.5-3.4"
  - Consumer price index (end of period): "13.0" and "13.9"
  - Consolidated government operations (percent of GDP):
    - Total revenues and grants: "8.5" and "4.9"
    - Total expenditure and net lending: "13.1" and "11.7"
    - Overall balance: "-4.6" and "-6.8"
  - Current account balance (Percent of GDP): "-1.1" and "-3.3"
  - Gross international reserves (US$ billions): "36.0" and "25.3"
  - Reserves (equivalent months of imports of G&Ss): "4.8" and "3.8"

### Balance of payments and financing needs
- Estimated BOP gap for 2020: "about $14 billion or 3.2 percent of GDP", of which the requested RFI purchase would cover "about 24 percent."
- Multilateral budget support negotiations in progress for "about $3.6 billion or almost 26 percent of the gap" (World Bank, AfDB, IsDB, Afreximbank).
- Gross international reserves reported as "$34 billion as of end-March 2020" (and "$36.7 billion by January 2020" elsewhere).
- Decline in foreign holdings of OMOs: "about $7.5 billion were held by foreigners as of March 2020— about 43 percent less than in December 2019."

### Fiscal impact, financing gap, and composition of measures
- Fiscal projections and gap:
  - Overall general government fiscal deficit for 2020 projected to widen to "6.8 percent of GDP (from 4.6 percent expected prior to the Covid-19 outbreak)."
  - Total revenue projected to decline by "3.6 percent of GDP."
  - Fiscal financing gap: about "$11 billion." After RFI purchases and other adjustments, staff estimates about "$8 billion (2 percent of GDP)" remaining; of that, "25 percent will be covered by existing budget support commitments from multilateral institutions."
- Spending adjustments and priorities:
  - Total spending lowered from "13.1 percent to 11.7 percent of GDP."
  - Health spending increased by "0.3 percent of GDP."
  - Interest payments increase by "0.2 percent of GDP."
  - Lower fuel subsidies reduce spending by "0.3 percent of GDP."
  - Contraction of SLGs spending and cuts in non-essential capital expenditures "0.3 percent of GDP."
- Authorities’ financing approaches:
  - Reprioritization of existing project loans toward health, drawdown of extrabudgetary and sovereign wealth fund deposits, and domestic borrowing.
  - Domestic financing space: large stock of maturing OMOs (about "N6 trillion domestic") could be used; domestic bond yields currently favorable.

### Policy response: fiscal, monetary, financial and exchange rate measures
- Fiscal measures and stimulus:
  - A "N500bn COVID-19 crisis intervention Fund" established on budget.
  - Federal Government allocations within intervention fund:
    - Current spending: "N1800bn" (medical supplies, testing kits, grants to pharmaceutical companies, Special Public Works Program).
    - Capital spending: "N1700bn" (upgrade healthcare facilities, expand isolation centers, public works).
  - Health spending in States: "N1500bn".
  - Fiscal relief measures total "0.05" (percent of GDP) include:
    - Import duty waivers for medicines and medical goods.
    - Income tax relief equal to a "50 percent rebate on PAYE payments".
    - Conditional cash transfer to households on the social register of "N720bn (0.05 percent of GDP)".
    - Expansion of social register from "2.6m to 3.6m households".
    - Continuation of school feeding programs; IDPs to receive "2 months' food rations."
  - Electricity tariff increases planned for April 2020 postponed to July.
  - Regulated fuel prices reduced; fuel subsidies eliminated; automatic fuel pricing formula introduced.
- Monetary and financial sector measures:
  - CBN maintained policy rate but introduced supportive measures: lower interest rates on applicable CBN interventions from "9 to 5 percent."
  - One year moratorium on interest payments for CBN facilities.
  - Plan to release "N3.5 trillion (2.4 percent of GDP)" through the banking sector by partially releasing cash reserve requirements (currently at "38 percent", regulatory "27.5 percent") targeted to lending to manufacturing, health and hospitality sectors.
  - CBN allowed regulatory forbearance to restructure loans from affected sectors temporarily, subject to banking supervision approval.
  - Loan classification and provisioning standards should not be relaxed (staff recommendation).
- Exchange rate policy actions:
  - Authorities committed to let the I&E rate move with market forces; the rate had depreciated by "about 7 percent since January."
  - Official rate changed from N305/$ to N360/$.
  - Gap between CBN’s minimum and maximum exchange rates reduced from 20 to 5 percent.
  - I&E window convergence and FX sales to bureau de change (BDCs) temporarily suspended.
  - Staff recommends immediate move to full and formal unification—converging all foreign exchange windows to the I&E window.

### Risks, scenarios, and assumptions
- Downside risks heightened:
  - Risk of oversupply in the oil market and fast-evolving decline in international oil prices, including steep discounts for unsold oil cargoes.
  - Potential decline in oil production from OPEC agreed cuts or inability to sell cargoes.
  - Risk of a prolonged global COVID-19 outbreak and a more protracted domestic pandemic leading to delayed economic normalization.
- Adverse scenario implications:
  - Larger declines in growth, larger fiscal and external financing needs, strain on available financing.
  - Possible spillovers generating additional fiscal costs, including contingent liabilities.
  - Contagion risks from Nigeria-based pan-African banks to regional offices.
- Baseline assumption:
  - COVID-19 spread in Nigeria contained in H2 2020 with recovery starting once crisis fades.

### Governance, transparency and safeguards
- Commitments to ensure use of assistance for intended purposes:
  - Undertake an independent audit of crisis-mitigation spending and related procurement processes.
  - Publish procurement plans and notices for all emergency-response activities, including names of awarded companies and beneficial owners.
  - Create specific budget lines to track emergency response expenditures and report funds released and expenditures incurred monthly on the transparency portal (http://opentreasury.gov.ng/).
  - Publish, no later than three to six months after the end of the fiscal year, the report of an independent audit into emergency response expenditures and related procurement processes.

### Staff assessment, debt sustainability and modalities of RFI support
- Staff assessment:
  - Public debt assessed to be sustainable and adequate capacity to repay the Fund under policies committed by authorities.
  - Staff supports authorities’ short-term focus on limiting macro-financial and social impact and their commitment to resume revenue-based fiscal consolidation post-crisis.
- RFI modalities:
  - Staff proposes support of 100 percent of quota (SDR 2.45 billion / "SDR 2454.5 million") under the RFI.
  - Proposed access covers "about 24 percent" of the estimated BOP gap for 2020.
  - RFI purchases will be made to the Central Bank of Nigeria and on-lent to the Nigerian government to provide fiscal financing and support COVID-19 related spending; a Memorandum of Understanding between the CBN and the government will specify responsibilities.
  - Authorities commit to undergo a safeguards assessment and provide central bank audit reports and auditor access to IMF staff.
- Debt sustainability and risks:
  - Under staff’s baseline, public debt will increase to "34.8 percent of GDP in 2020 (including the RFI purchases)", would reach "37.4 percent in 2022" and come down to "36.3 percent in 2025."
  - Government interest payments would continue to absorb a large share of federal government revenues over the medium term under current policies.
  - Explicit contingent liabilities of the federal government are "about 3 percent of GDP"; additional non-guaranteed liabilities of government owned entities and certain PPP and energy-related projects present further risk.
  - Stress tests indicate vulnerability to a low growth/wider primary deficit scenario; interest-to-revenue ratio can increase substantially under shocks (examples: interest rate shock raises FG interest-to-revenue ratio to "145 percent"; standardized combined macro-fiscal shock to "172 percent").

### Selected projections and key numeric indicators (selected from staff tables)
- Real GDP (at 2010 market prices):
  - 2019: 2.3
  - 2020: -3.4
  - 2021: 2.4
  - 2022: 2.6
  - 2023: 2.4
  - 2024: 2.5
  - 2025: 2.5
- Oil and Gas GDP:
  - 2019: 4.6
  - 2020: -8.1
  - 2021: 2.9
  - 2022: 8.2
  - 2023: 6.5
  - 2024: 3.2
  - 2025: 0.2
- Consumer price index (annual average):
  - 2020: 13.4; 2021: 12.0; 2022: 11.2; 2023: 11.0; 2024: 10.8; 2025: 10.6
- Gross international reserves (US$ billions), end-of-period:
  - 2019: 38.1; 2020: 25.3; 2021: 23.4; 2022: 24.1; 2023: 26.5; 2024: 29.0; 2025: 30.3
- Consolidated government overall balance (percent of GDP):
  - 2019: -5.0; 2020: -6.8; 2021: -5.7; 2022: -5.4; 2023: -4.3; 2024: -3.8; 2025: -3.5
- Consolidated government total revenue (percent of GDP):
  - 2019: 8.5; 2020: 7.9; 2021: 4.9; 2022: 5.6; 2023: 6.4; 2024: 7.5; 2025: 8.3
- Public gross debt (percent of GDP):
  - 2019: 29.1; 2020: 34.8; 2021: 36.3; 2022: 37.4; 2023: 37.3; 2024: 36.9; 2025: 36.3
- Federal Government interest payments (percent of FGN revenue):
  - 2019: 57.5; 2020: 95.9; 2021: 80.8; 2022: 83.0; 2023: 77.3; 2024: 78.1; 2025: 79.8
- Balance of payments (US$ billions, selected):
  - Current account balance: 2019: -17.0; 2020: -14.7; 2021: -12.7
  - Trade balance: 2019: 2.9; 2020: -7.2; 2021: -5.4
  - Exports (goods and services): 2019: 65.0; 2020: 37.3; 2021: 43.0
  - Imports (goods and services): 2019: -62.1; 2020: -44.5; 2021: -48.4
- Monetary and banking indicators (selected):
  - Broad money (y-o-y, percent): 2019: 15.2; 2020: 6.2
  - Credit to the private sector (y-o-y, percent): 2019: -6.7; 2020: 13.7
  - Reserve money (levels, selected, billions of Naira): 2019: 12,353; 2020: 19,181; 2025: 30,321

### Policy recommendations and staff support (operational)
- Fiscal:
  - Urgently present a supplementary budget to parliament reflecting oil revenue shortfall, higher health spending, and an additional targeted and temporary package to protect businesses and households; staff encourages extension of filing dates and use of installment payment arrangements and further scaling-up of social transfer programs.
  - Cuts/postponement of capital spending ("0.3 percent of GDP") or SLG expenditures should be temporary.
  - Business continuity plans at customs and revenue administration to preserve revenue collection.
- Financing:
  - Speedy adoption of new borrowing limits to allow additional bond issuance; last bond auction average cover ratio "4.7 times" with 30-year bond demand "7 times the offer."
- Exchange rate policy:
  - Move immediately to full and formal unification of FX windows to the I&E window; calibrate FX sales to protect reserves while recognizing low oil prices and reduced FX demand.
  - Avoid rationing of foreign exchange as in 2015.
- Monetary policy:
  - Support central bank caution in easing monetary policy given inflationary risks; monitor closely and provide adequate liquidity if necessary; consider all available policies if sharp outflows lead to exchange rate overshoot.
- Financial sector:
  - Support CBN’s bank-by-bank approach; banks’ capital and liquidity buffers remain first line of defense; supervisors could temporarily allow banks to drop below minimum capital requirement ("currently 15 percent for large banks").
  - Intensify monitoring of banks’ liquidity, particularly in foreign currency; release high effective CRRs as needed.
  - Temporary restructuring for fundamentally sound borrowers; loan classification and provisioning standards should not be relaxed.
  - Continue strict enforcement of prudential FX exposure limits and require Nigerian banks’ foreign subsidiaries to hold additional capital cushions.
- Medium-term adjustments (post-crisis):
  - Resume revenue-based fiscal consolidation to eliminate central bank financing and create space for priority spending.
  - Remove existing FX restrictions on goods imports alongside exchange rate unification.
  - Resume monetary policy tightening through more orthodox tools (i.e., no discretionary CRR that distorts banks’ liquidity management) to reach single digit inflation target.
  - Eliminate regulations that spur risky lending (loan-to-deposit ratio) and accelerate structural reforms—particularly in the power sector.

### Authorities’ views and commitments
- Institutional responses:
  - Economic Sustainability Committee chaired by the Vice President; Presidential Economic Advisory Council assessing macro policy measures.
- Fiscal and reform commitments:
  - Aim to increase revenue to "15 percent of GDP" within five years as part of ERGP.
  - Earmarked extrabudgetary funds could be used to strengthen revenue resources.
  - Support for IMF/World Bank call on debt service suspension from official creditors; savings from bilateral debt service suspension for rest of 2020 estimated at "about $165 million."
- Central bank commitments:
  - Greater market-determined exchange rate flexibility and unified exchange rates; I&E market remains a willing buyer and seller market and official rate adjusted to reflect fundamentals.
  - CBN cautious on monetary policy to avoid exacerbating inflationary pressures; maturing OMOs provide liquidity; recent stress tests indicate capital buffers will remain above "10 percent" even at current low oil prices.
  - Ongoing impact assessment of COVID-19 uncertainties on IFRS 9 impairment computations.
  - Strengthened financial sector oversight and reporting, particularly on foreign exchange assets and liabilities risk.

*Source: EXECUTIVE SUMMARY — 1ngaea2020001, International Monetary Fund, April 22, 2020.*

### EXECUTIVE SUMMARY

### 1ngaea2020001 - EXECUTIVE SUMMARY

### Context and request for IMF support
- COVID-19 is severely impacting economic activity in Nigeria, compounded by a sharp fall in international oil prices and reduced global demand for Nigeria’s oil products.
- Nigeria’s oil and gas exports represent "84 percent of total exports" and are expected to fall by "more than $26½ billion."
- The economy is projected to contract by "almost 3½ percent in 2020", a "six-percentage point drop relative to pre-COVID-19 projections."
- Authorities requested financial assistance under the IMF’s Rapid Financing Instrument (RFI) exogenous shock window of "SDR 2454.5 million, equivalent to 100 percent of quota" for budget support. Staff supports this request.
- Timing and program design considerations: high uncertainty on the duration and scale of COVID-19 imply an upper credit tranche (UCT) quality program cannot be quickly put in place.

### Macroeconomic developments and outlook
- Pre-COVID-19 vulnerabilities and performance:
  - Growth averaged "2.3 percent in 2019".
  - International reserves had fallen to "$36.7 billion by January 2020 (about 50 percent of the Fund’s ARA metric + oil buffer)."
  - Overall federal government (FG) deficit widened to "4.8 percent of GDP in 2019"; debt-to-GDP ratio reached "29 percent of GDP in 2019."
  - Interest payments to federal government (FG) revenue ratio remained about "58 percent (21 percent at consolidated government level)."
  - Banking system: NPL ratio halved to "6 percent in 2019"; solvency ratio fell by "0.7 percentage points to 14.6 percent at end-2019."
- COVID-19 impact:
  - Domestic containment measures included border closures and lockdowns of Lagos, Ogun State and Abuja.
  - Non-oil, non-agricultural economy represents "65 percent of GDP."
  - By end-March, foreign portfolio holdings decreased by "46 percent since the beginning of the year and by almost 60 percent since mid-2019."
  - Official exchange rate adjusted by "17½ percent"; I&E window broadly unified with other windows.
  - Spreads widened: credit default swaps and 30-year Eurobond yields up by "700 and 600 basis points, respectively."
  - Gross international reserves: "$34 billion as of end-March 2020" (also reported as "$36.0" and "25.3" in table comparisons).
- Macroeconomic projections and key 2020 figures (pre-/post-COVID comparisons shown in source):
  - Real GDP (at 2010 market prices): "2.5-3.4"
  - Consumer price index (end of period): "13.0" and "13.9"
  - Consolidated government operations:
    - Total revenues and grants: "8.5" and "4.9" (percent of GDP)
    - Total expenditure and net lending: "13.1" and "11.7" (percent of GDP)
    - Overall balance: "-4.6" and "-6.8" (percent of GDP)
  - Current account balance (Percent of GDP): "-1.1" and "-3.3"
  - Gross international reserves (US$ billions): "36.0" and "25.3"
  - Reserves (equivalent months of imports of G&Ss): "4.8" and "3.8"

### Balance of payments and financing needs
- COVID-19 and oil shock created an urgent balance of payments (BOP) need.
- Estimated BOP gap for 2020: "about $14 billion or 3.2 percent of GDP", of which the requested RFI purchase would cover "about 24 percent."
- Multilateral negotiations in progress for budget support loans of "about $3.6 billion or almost 26 percent of the gap" (World Bank, AfDB, IsDB, Afreximbank).
- Gross international reserves reported as "$34 billion as of end-March 2020" (and "$36.7 billion by January 2020" elsewhere).
- Decline in foreign holdings of OMOs: "about $7.5 billion were held by foreigners as of March 2020— about 43 percent less than in December 2019."

### Fiscal impact and financing gap
- Overall general government fiscal deficit for 2020 projected to widen to "6.8 percent of GDP (from 4.6 percent expected prior to the Covid-19 outbreak)."
- Total revenue projected to decline by "3.6 percent of GDP."
- Spending adjustments: total spending lowered from "13.1 percent to 11.7 percent of GDP."
  - Health spending up to "0.3 percent of GDP."
  - Interest payments increase by "0.2 percent of GDP."
  - Lower fuel subsidies reduce spending by "0.3 percent of GDP."
  - Contraction of SLGs spending and cuts in non-essential capital expenditures "0.3 percent of GDP."
- Fiscal financing gap: about "$11 billion." After RFI purchases and other adjustments, staff estimates about "$8 billion (2 percent of GDP)" remaining; of that, "25 percent will be covered by existing budget support commitments from multilateral institutions."
- Financing approaches by authorities: reprioritization of existing project loans toward health, drawdown of extrabudgetary and sovereign wealth fund deposits, and domestic borrowing.
- Domestic financing space: large stock of maturing OMOs (about "N6 trillion domestic") could be used; domestic bond yields currently favorable.

### Policy response: fiscal, monetary, and exchange rate
- Fiscal measures:
  - A "N500bn COVID-19 crisis intervention Fund" established on budget.
  - Federal Government current spending: "N1800bn" allocated within intervention fund (medical supplies, testing kits, grants to pharmaceutical companies, Special Public Works Program).
  - FG capital spending: "N1700bn" (upgrade healthcare facilities, expand isolation centers, public works).
  - Health spending in States: "N1500bn".
  - Fiscal relief measures total "0.05" (percent of GDP) include import duty waivers for medicines and medical goods, income tax relief equal to a "50 percent rebate on PAYE payments", conditional cash transfer to households on the social register of "N720bn" (0.05 percent of GDP), expansion of social register from "2.6m to 3.6m households", continuation of school feeding programs, IDPs to receive "2 months' food rations."
  - Electricity tariff increases planned for April 2020 postponed to July.
  - Regulated fuel prices reduced; fuel subsidies eliminated; automatic fuel pricing formula introduced.
- Monetary and financial measures:
  - CBN maintained policy rate but introduced measures to assist firms: lower interest rates on applicable CBN interventions from "9 to 5 percent."
  - One year moratorium on interest payments for CBN facilities.
  - Plan to release "N3.5 trillion (2.4 percent of GDP)" through the banking sector by partially releasing cash reserve requirements (currently at "38 percent", regulatory "27.5 percent") targeted to lending to manufacturing, health and hospitality sectors.
- Exchange rate policy:
  - Authorities committed to let the I&E rate move with market forces; the rate had depreciated by "about 7 percent since January."
  - FX sales to bureau de change (BDCs) temporarily suspended.

### Risks and scenario considerations
- Downside risks have heightened, notably:
  - Risk of oversupply in the oil market and fast-evolving decline in international oil prices, including steep discounts for unsold oil cargoes.
  - Potential decline in oil production from OPEC agreed cuts or inability to sell cargoes.
  - Risk of a prolonged global COVID-19 outbreak and a more protracted domestic pandemic leading to delayed economic normalization.
- Adverse scenario implications:
  - Larger declines in growth, larger fiscal and external financing needs, strain on available financing.
  - Possible spillovers generating additional fiscal costs, including contingent liabilities.
  - Contagion risks from Nigeria-based pan-African banks to regional offices.
- Assumptions in baseline: COVID-19 spread in Nigeria contained in H2 2020 with recovery starting once crisis fades.

### Governance and use of funds
- To ensure COVID-19 financial assistance is used for intended purposes, the Nigerian authorities committed to:
  - Undertake an independent audit of crisis-mitigation spending and related procurement processes.
  - Publish procurement plans and notices for all emergency-response activities, including names of awarded companies and beneficial owners.

### Staff assessment and modalities
- Staff assesses public debt to be sustainable and that there is adequate capacity to repay the Fund.
- Authorities committed to resume a revenue-based fiscal consolidation program after the crisis, avoiding recourse to central bank financing.
- Authorities committed to continue strengthening financial supervision and regulation to safeguard macro-financial stability.
- The requested RFI purchase would cover "about 24 percent" of the estimated BOP gap for 2020.

*Source: EXECUTIVE SUMMARY — 1ngaea2020001, International Monetary Fund, April 22, 2020.*

### 12.      Staff supports the authorities’ short-term focus on limiting the macro-financial and social

### 12.      Staff supports the authorities’ short-term focus on limiting the macro-financial and social impact of the COVID-19 crisis

### Fiscal
- A substantial part of the shock would need to be accommodated through the budget.
- Staff encourages the authorities to urgently present a supplementary budget to parliament reflecting the oil revenue shortfall, higher health spending, and an additional targeted and temporary package to protect the businesses and households impacted, particularly in view of the large size of the informal sector (60 percent).
- In addition to the measures in the COVID-19 crisis intervention Fund, measures could include extension of filing dates and making use of installment payment arrangements as well as further scaling-up of social transfer programs.
- Staff welcomes the introduction of an automatic fuel price formula to eliminate fuel subsidies.
- Staff notes that the proposed cuts/postponement of capital spending (0.3 percent of GDP) or SLG expenditures, which are considered non-essential, should be temporary in view of the country’s large infrastructure needs.
- Business continuity plans should be pursued at both customs and revenue administration to ensure revenue collection is preserved.

### Financing
- Staff urges the speedy adoption of new borrowing limits to allow additional bond issuance at still favorable rates (pension funds have extra liquidity now that they can no longer use to purchase high-yielding CBN bills because of regulations introduced in October 2019).
- Results of the last bond auction show strong demand, with an average cover ratio of 4.7 times and the 30-year bond receiving the strongest demand at 7 times the offer at auction.

### Exchange Rate Policy
- With reserves falling, staff welcomes recent steps taken by the CBN to allow greater flexibility in the Investors & Exporters (I&E) rate and narrow differences between various FX windows.
- With the spread across the various exchange rate windows now very narrow, this is also a good moment to immediately move to full and formal unification—e.g., by converging all foreign exchange windows to the I&E window.
- CBN should calibrate its foreign exchange sales in the market at a level commensurate with protecting central bank reserves while taking into account low international oil prices and reduced FX demand.
- A unified and more flexible exchange rate will be an important shock absorber, especially in turbulent times—with CBN FX interventions limited to smoothing large fluctuations in the exchange rate.
- Rationing of foreign exchange—such as occurred in 2015—must be avoided as it would hamper trade and investor confidence, hence further delaying the economic recovery once the crisis passes.

### Monetary Policy
- Staff supports the central bank’s caution in easing monetary policy, in view of potential inflationary pressures arising from exchange rate and food supply shocks.
- Given the uncertainties, the situation needs to be monitored closely and adequate liquidity provided if necessary.
- A sharp increase in outflows, potentially leading to an overshoot in the exchange rate, would pose a difficult dilemma; while a tightening of monetary policy may still be the first-best policy response, it could further damage economic activity.
- In such a situation, all available policies should be considered.

### Financial Sector Policies
- Staff supports the CBN’s current bank-by-bank approach to assess risks from COVID-19.
- Banks’ own capital and liquidity buffers should remain the first line of defense, which in the case of Nigeria means that supervisors could temporarily allow banks to drop below the minimum capital requirement (currently 15 percent for large banks, which is significantly above the Basel II 8 percent requirement).
- To be able to withstand large liquidity shocks, the CBN should intensify its monitoring of banks’ liquidity, particularly in foreign currency, and release the high effective CRRs as needed.
- Staff supports the CBN in having banks consider temporary restructuring of loan terms but cautions that such relief should be provided only to fundamentally sound borrowers.
- Loan classification and provisioning standards should not be relaxed.
- The CBN should continue to strictly enforce the prudential FX exposure limits.
- Cross-border contagion risk will be reduced by having Nigerian banks’ foreign subsidiaries hold additional capital cushions well beyond local capital requirements.

### Medium-term adjustments (post-crisis)
- Once the COVID-19 crisis passes, revenue-based fiscal consolidation should resume to eliminate central bank financing and create space for priority spending (as reflected in the LOI ¶7).
- Along with exchange rate unification, existing FX restrictions on goods imports should be removed.
- Monetary policy tightening through more orthodox tools (i.e., no discretionary CRR that distorts banks’ liquidity management) should be resumed to enable the CBN to reach its single digit inflation target.
- Banking sector resilience should continue to be enhanced through stronger bank resolution mechanisms and on-site and off-site supervision.
- Recent regulations to spur lending through the loan-to-deposit ratio, which encourages higher credit risk and a shorter maturity structure, should be eliminated.
- Accelerating structural reforms—particularly in the power sector—would be needed to lay the foundation for a diversified private-sector led economy.

### Anti-corruption and governance
- Strengthen the role of the Federal Audit Board and increase resources available to anti-corruption agencies.
- Strengthen the asset declaration framework.
- Implement the risk-based approach to AML/CFT supervision and ensure the transparency of beneficial ownership of legal persons.
- To ensure COVID-19 financial assistance is used for intended purposes, staff supports commitments to:
  - (i) undertake an independent audit of crisis-mitigation spending and related procurement processes once the crisis abates and publish the results; and
  - (ii) publish procurement plans and notices for all emergency-response activities, including names of awarded companies and beneficial owners (LOI, ¶8).

### Debt sustainability
- Public debt is projected to remain sustainable under a variety of shocks, albeit liquidity-based indicators remain a concern and make Nigeria’s low debt-to-GDP ratio highly vulnerable to shocks.
- Under staff’s baseline, public debt will increase to 34.8 percent of GDP in 2020 (including the RFI purchases), would reach 37.4 percent in 2022 and come down to 36.3 percent in 2025.
- Government interest payments would continue to absorb a large share of federal government revenues over the medium term under current policies.
- These risks are partially mitigated after accounting for extrabudgetary revenue and state and local government revenue; access to these resources in the case of an emergency would allow the ratio would remain high but manageable at between 20 to 30 percent of consolidated government revenue.
- Contingent liabilities present an additional fiscal risk, including explicit contingent liabilities of the federal government (about 3 percent of GDP) as well as non-guaranteed liabilities of government owned entities and certain PPP and energy-related projects.
- The stress test scenario points to continued vulnerability to a low growth/wider primary deficit scenario.

### Authorities’ views
- Authorities set up an Economic Sustainability Committee—chaired by the Vice President—to devise strategies to limit the impact of COVID-19.
- The Presidential Economic Advisory Council is assessing macroeconomic policy measures to ensure macroeconomic stability and reduce poverty.
- Authorities are committed to ensuring debt remains sustainable by pursuing revenue-based fiscal consolidation and emphasize that their Economic Recovery and Growth Plan (ERGP) will include additional transformative measures to achieve their 15 percent of GDP revenue objective within five years (LOI ¶7).
- Earmarked revenue in extrabudgetary funds could be used to strengthen revenue resources.
- Authorities expressed strong support for the IMF/World Bank’s call on debt service suspension from official creditors and are following up with bilateral creditors; savings from bilateral debt service suspension for the rest of 2020 would remain modest at about $165 million.
- Authorities reiterated commitment to governance reform and plan to provide adequate resources to governance institutions, including the Auditor General of the Federation, to spearhead an independent audit of COVID-19 emergency response expenditures.
- CBN noted commitment to greater market-determined exchange rate flexibility and towards more unified exchange rates; the I&E market remains a willing buyer and seller market and the official rate has been adjusted to reflect economic fundamentals.
- CBN reiterated caution on monetary policy to avoid exacerbating inflationary pressures; maturing OMOs already provide liquidity in the system, helped by the COVID-19 plan to support households, SMEs and the healthcare sector.
- CBN is actively monitoring the COVID-19 crisis impact on banks; recent stress tests indicate capital buffers will remain above 10 percent even at current low oil prices.
- CBN has allowed regulatory forbearance to restructure loans from affected sectors temporarily, subject to CBN banking supervision approval.
- Impact assessment of how COVID-19 uncertainties will affect IFRS 9 impairment computations is ongoing.
- CBN has strengthened financial sector oversight and reporting mechanisms, particularly regarding foreign exchange assets and liabilities risk.

### Modalities of support
- Staff proposes to provide support to Nigeria of 100 percent of quota (SDR 2.45 billion) under the RFI.
- Nigeria meets the eligibility requirements for support under the RFI as it has an urgent balance of payments need.
- Nigeria is assessed as having sustainable debt and capacity to repay the Fund despite some risks.
- Proposed access is 24 percent of the estimated BOP financing gap.
- Remaining needs are expected to be filled by other development partners and further policy adjustments.
- RFI purchases will be made to the Central Bank of Nigeria and on-lent to the Nigerian government to provide fiscal financing and support COVID-19 related spending.
- The proposed access is insufficient to cover the full fiscal financing gap but the authorities are actively seeking further support from bilateral and multilateral sources (emergency AfDB, WB, IsDB and Afreximbank).
- Budget support of about $3.6 billion is currently planned for 2020, with some additional financing for 2021 already identified.
- A Memorandum of Understanding between the CBN and the government will be signed to ensure responsibilities for servicing financial obligations to the IMF are clearly established.
- Authorities commit to undergoing a safeguards assessment as soon as feasible and will provide central bank audit reports and authorize external auditors of the CBN to hold discussions with staff.
- Risks to Nigeria’s capacity to repay are mitigated by authorities’ resolve to allow greater exchange rate flexibility, planned resumption of revenue-based fiscal consolidation, implementation of power sector reforms post-crisis, and commitment to continued close dialogue with the Fund.
- Downside risks include substantial deterioration in sovereign spreads and a peak of RFI-related obligations to the Fund that remain high as a share of exports or reserves (close to the 80th percentile of a comparable group of lower-middle income Fund borrowers).

### Staff appraisal
- The COVID-19 outbreak is having a severe impact on Nigeria; real GDP growth is expected to decline to a historic low of -3.4 percent and create a large external and fiscal financing needs in 2020.
- Downside risks—particularly from a further collapse in oil prices/production and more protracted containment measures—have heightened; were these to materialize, they could seriously affect the real and financial sectors while straining the country’s financing prospects.
- Staff supports the authorities’ immediate actions to respond to the crisis and their commitment to medium-term macroeconomic stability once the COVID-19 crisis passes.
- The short-term focus on fiscal accommodation and the removal of fuel subsidies are welcome.
- Important steps taken towards a more unified and flexible exchange rate are welcome and should be followed by the immediate unification of the exchange rate.
- Once the crisis passes, it is important that these reforms be sustained and that revenue-based fiscal consolidation resumes.
- Swiftly implementing ERGP reform priorities—including on power sector and governance—will be important.

*INTERNATIONAL MONETARY FUND*

### 31.      Staff supports the authorities’ request for a purchase under the Rapid Financing

### 1ngaea2020001 - 31.      Staff supports the authorities’ request for a purchase under the Rapid Financing

### RFI request and staff judgment
- Staff supports the authorities’ request for a purchase under the Rapid Financing Instrument of SDR 2454.5 million (100 percent of quota).
- Justification:
  - The scale and severity of the COVID-19 shock (and associated falls in international oil prices) have created actual and urgent balance of payments needs.
  - Characterizing this purchase as direct budget support is warranted by the large revenue shortfalls and pressing healthcare and humanitarian needs.
- Debt and repayment assessment:
  - Nigeria’s debt remains sustainable and its capacity to repay the Fund is adequate under the policies committed by the authorities in the LOI.

### Real economy and price projections (selected)
- Real GDP (at 2010 market prices) projections:
  - 2019: 2.3
  - 2020: -3.4
  - 2021: 2.4
  - 2022: 2.6
  - 2023: 2.4
  - 2024: 2.5
  - 2025: 2.5
- Oil and Gas GDP:
  - 2019: 4.6
  - 2020: -8.1
  - 2021: 2.9
  - 2022: 8.2
  - 2023: 6.5
  - 2024: 3.2
  - 2025: 0.2
- Consumer price index (annual average):
  - 2020: 13.4
  - 2021: 12.0
  - 2022: 11.2
  - 2023: 11.0
  - 2024: 10.8
  - 2025: 10.6
- GDP deflator:
  - 2020: 10.9
  - 2021: 12.2
  - 2022: 11.4
  - 2023: 11.2
  - 2024: 10.9
  - 2025: 10.8

### External sector and reserves (selected)
- Current account balance (percent of GDP):
  - 2019: -3.8
  - 2020: -3.3
  - 2021: -2.5
  - 2022: -2.0
  - 2023: -1.5
  - 2024: -1.4
  - 2025: -1.3
- Price of Nigerian oil (US dollar per barrel):
  - 2019: 64.0
  - 2020: 35.1
  - 2021: 39.5
  - 2022: 42.7
  - 2023: 45.1
  - 2024: 47.1
  - 2025: 48.6
- Gross international reserves (US$ billions), end-of-period:
  - 2019: 38.1
  - 2020: 25.3
  - 2021: 23.4
  - 2022: 24.1
  - 2023: 26.5
  - 2024: 29.0
  - 2025: 30.3
- Reserves in months of imports of G&Ss:
  - 2019: 6.1
  - 2020: 3.8
  - 2021: 3.2
  - 2022: 3.1
  - 2023: 3.2
  - 2024: 3.3
  - 2025: 3.2

### Balance of payments (selected, US$ billions)
- Current account balance:
  - 2019: -17.0
  - 2020: -14.7
  - 2021: -12.7
  - 2022: -11.2
  - 2023: -9.9
  - 2024: -10.4
  - 2025: -11.1
- Trade balance:
  - 2019: 2.9
  - 2020: -7.2
  - 2021: -5.4
  - 2022: -2.8
  - 2023: -3.2
  - 2024: -4.2
  - 2025: -6.2
- Exports (goods and services):
  - 2019: 65.0
  - 2020: 37.3
  - 2021: 43.0
  - 2022: 53.4
  - 2023: 58.6
  - 2024: 63.3
  - 2025: 67.9
- Imports (goods and services):
  - 2019: -62.1
  - 2020: -44.5
  - 2021: -48.4
  - 2022: -56.2
  - 2023: -61.8
  - 2024: -67.5
  - 2025: -74.1
- RFI Disbursement noted in 2020 table: 3.4

### Government finances and fiscal outlook (selected)
- Consolidated government overall balance (percent of GDP):
  - 2019: -5.0
  - 2020: -6.8
  - 2021: -5.7
  - 2022: -5.4
  - 2023: -4.3
  - 2024: -3.8
  - 2025: -3.5
- Consolidated government total revenue (percent of GDP):
  - 2019: 8.5
  - 2020: 7.9
  - 2021: 4.9
  - 2022: 5.6
  - 2023: 6.4
  - 2024: 7.5
  - 2025: 8.3
- Total expenditure (percent of GDP):
  - 2019: 12.8
  - 2020: 12.9
  - 2021: 11.7
  - 2022: 11.3
  - 2023: 11.8
  - 2024: 11.8
  - 2025: 12.5
- Federal Government: FGN overall balance (percent of GDP):
  - 2019: -4.8
  - 2020: -5.3
  - 2021: -4.5
  - 2022: -4.6
  - 2023: -4.1
  - 2024: -4.1
  - 2025: -3.9
- Federal Government interest payments (percent of FGN revenue):
  - 2019: 57.5
  - 2020: 95.9
  - 2021: 80.8
  - 2022: 83.0
  - 2023: 77.3
  - 2024: 78.1
  - 2025: 79.8

### Public debt and external obligations (selected)
- Public gross debt (percent of GDP):
  - 2019: 29.1
  - 2020: 34.8
  - 2021: 36.3
  - 2022: 37.4
  - 2023: 37.3
  - 2024: 36.9
  - 2025: 36.3
- External debt outstanding (US$ billions):
  - 2019: 126.4
  - 2020: 129.9
  - 2021: 141.5
  - 2022: 154.6
  - 2023: 167.8
  - 2024: 181.4
  - 2025: 196.3
- Public external debt (US$ billions, end of period):
  - 2019: 70.0
  - 2020: 74.5
  - 2021: 81.1
  - 2022: 87.8
  - 2023: 93.9
  - 2024: 99.6
  - 2025: 105.3
- External debt service due (percent of exports of G&S):
  - 2019: -21.0
  - 2020: -48.0
  - 2021: -35.0
  - 2022: -33.7
  - 2023: -32.0
  - 2024: -31.5
  - 2025: -28.0

### Monetary and banking indicators (selected)
- Broad money (y-o-y, percent):
  - 2019: 15.2
  - 2020: 6.2
  - 2021: 10.6
  - 2022: 16.0
  - 2023: 16.7
  - 2024: 16.5
  - 2025: 16.6
- Credit to the private sector (y-o-y, percent):
  - 2019: -6.7
  - 2020: 13.7
  - 2021: 13.7
  - 2022: -0.1
  - 2023: 1.6
  - 2024: 3.2
  - 2025: 7.3
- Reserve money (levels, selected):
  - 2019: 12,353 (billions of Naira)
  - 2020: 19,181
  - 2021: 20,788
  - 2022: 22,711
  - 2023: 24,860
  - 2024: 27,299
  - 2025: 30,321

*Source: IMF staff and Nigerian authorities, as presented in the cited IMF staff report tables.*

### 9. Nigeria:

### 9. Nigeria

### Indicators of Capacity to Repay the Fund (as of March 26, 2020)
- Fund obligations based on existing credit (millions of SDRs)
  - Principal: 0.22 (2020); 0.14 (2021–2034 each year)
  - Charges and interest: 0.00 (2020–2034 each year)
- Fund obligations based on existing and prospective credit (millions of SDRs)
  - Principal: 0.00 (2020–2022); 613.63 (2023); 1227.25 (2024); 613.63 (2025); 0.00 (2026–2034)
  - Charges and interest: 26.06 (2020); 26.66 (2021); 26.68 (2022); 25.76 (2023); 14.89 (2024); 2.58 (2025); 0.17 (2026–2034 each year)
- Total obligations based on existing and prospective credit
  - Millions of SDRs: 26.06 (2020); 26.66 (2021); 26.68 (2022); 639.39 (2023); 1242.14 (2024); 616.21 (2025); 0.17 (2026–2034 each year)
  - Millions of U.S. dollars: 36.09 (2020); 37.05 (2021); 37.20 (2022); 893.57 (2023); 1741.74 (2024); 867.13 (2025); 0.24 (2026–2033); 0.00 (2034)
  - Percent of exports of goods and services: 0.09 (2020); 0.08 (2021); 0.06 (2022); 1.40 (2023); 2.53 (2024); 1.18 (2025); 0.00 (2026–2034)
  - Percent of debt service: 0.07 (2020); 0.08 (2021); 0.07 (2022); 1.59 (2023); 2.85 (2024); 1.35 (2025); 0.00 (2026); 0.22 (2027); 0.23 (2028); 0.24 (2029); 0.26 (2030); 0.28 (2031); 0.30 (2032); 0.33 (2033); 0.00 (2034)
  - Percent of quota: 1.06 (2020); 1.09 (2021); 1.09 (2022); 26.05 (2023); 50.61 (2024); 25.11 (2025); 0.01 (2026–2033 each year); 0.01 (2034)
  - Percent of gross international reserves: 0.14 (2020); 0.16 (2021); 0.15 (2022); 3.38 (2023); 6.01 (2024); 2.86 (2025); 0.00 (2026–2034)
  - Percent of GDP: 0.01 (2020); 0.01 (2021); 0.01 (2022); 0.14 (2023); 0.24 (2024); 0.10 (2025); 0.00 (2026–2034)
  - Percent of consolidated government revenue: 0.16 (2020); 0.13 (2021); 0.10 (2022); 1.85 (2023); 2.86 (2024); 1.16 (2025); 0.00 (2026–2034)
  - Percent of federal government revenue: 0.43 (2020); 0.36 (2021); 0.29 (2022); 5.47 (2023); 8.68 (2024); 3.62 (2025); 0.00 (2026–2034)
- Outstanding Fund credit
  - Millions of SDRs: 2454.5 (2019–2021); 1840.9 (2022); 613.6 (2023); 0.0 (2024–2034)
  - Millions of U.S. dollars: 3398.8 (2019); 3410.9 (2020); 3422.1 (2021); 2572.7 (2022); 860.4 (2023); 0.0 (2024–2034)
  - Percent of exports of goods and services: 8.1 (2019); 7.1 (2020); 5.9 (2021); 4.0 (2022); 1.3 (2023); 0.0 (2024–2034)
  - Percent of debt service: 1 (2009–2017 actual note) ; 6.8 (2019); 7.4 (2020); 6.6 (2021); 4.6 (2022); 1.4 (2023); 0.0 (2024–2034)
  - Percent of quota: 100.0 (2019–2021); 75.0 (2022); 25.0 (2023); 0.0 (2024–2034)
  - Percent of gross international reserves: 13.4 (2019); 14.6 (2020); 14.2 (2021); 9.7 (2022); 3.0 (2023); 0.0 (2024–2034)
  - Percent of GDP: 0.8 (2019); 0.7 (2020); 0.6 (2021); 0.4 (2022); 0.1 (2023); 0.0 (2024–2034)
  - Percent of consolidated government revenue: 15.36 (2019); 12.24 (2020); 9.37 (2021); 5.33 (2022); 1.41 (2023); 0.00 (2024–2034)
  - Percent of federal government revenue: 40.36 (2019); 33.21 (2020); 26.97 (2021); 15.76 (2022); 4.29 (2023); 0.00 (2024–2034)
- Net Use of Fund Credit (millions of SDRs)
  - 2480.6 (2019); 26.7 (2020); 26.7 (2021); -587.9 (2022); -1212.4 (2023); -611.1 (2024); 0.2 (2025–2034 each year)
  - Disbursements: 2480.6 (2019); 26.7 (2020); 26.7 (2021); 25.8 (2022); 14.9 (2023); 2.6 (2024); 0.2 (2025–2034)
  - Repayments: 0.0 (2019–2021); 613.6 (2022); 1227.3 (2023); 613.6 (2024); 0.0 (2025–2034)

### Memorandum Key Macro and External Figures (as presented)
- Exports of goods and services (millions of U.S. dollars): 41,731; 47,842; 58,417; 63,824; 68,776; 73,674; 74,516; 80,104; 86,680; 94,464; 103,732; 114,823; 128,161; 144,274; ...
- Debt service (millions of U.S. dollars): 49,740; 45,985; 51,750; 56,080; 61,214; 64,435; 65,301; 109; 104; 98; 92; 86; 80; 73; 69; ...
- Quota (millions of SDRs): 2,455 (repeated across projection years)
- Gross international reserves (millions of U.S. dollars): 25,292; 23,420; 24,117; 26,460; 28,970; 30,347; 26,349; 20,358; 19,725; 13,107; (7,063); (54,787); (155,305); (353,871); ...
- GDP (billions of U.S. dollars): 443; 498; 569; 648; 736; 836; 967; 1,140; 1,345; 1,584; 1,855; 2,149; 2,453; 2,855; ...

### Financial Soundness Indicators (2013–19Q4)
- Regulatory Capital to Risk-Weighted Assets: 17.1 (2013); 18.6 (2014); 17.7 (2015); 14.8 (2016); 13.5 (2017); 10.5 (2017 repeated); 15.2 (2018); 15.3 (2019Q2); 14.6 (2019Q4)
- Regulatory Tier 1 Capital to Risk-Weighted Assets: 17.1; 15.5; 18.1; 16.3; 13.3; 8.4; 13.5; 13.6; 12.8
- Non-Performing Loans to Total Gross Loans: 3.4; 3.0; 4.9; 12.8; 14.7; 14.8; 11.8; 9.3; 6.1
- Return on Assets: 2.3; 2.5; 2.5; 1.3; 2.3; 2.4; 2.0; 2.5; 2.5
- Return on Equity: 18.9; 21.2; 19.7; 10.0; 17.6; 23.5; 22.7; 30.0; 29.4
- Interest Margin to Gross Income: 63.9; 51.2; 62.2; 67.6; 72.7; 61.2; 67.3; 63.0; 61.0
- Non-interest Expenses to Gross Income (selected points): 68.1; 56.9; 63.1; 62.8; 58.3; 58.2; 60.9; 65.4; 64.7
- Liquid Assets to Total Assets (Liquid Asset Ratio): 16.8; 11.4; 18.5; 16.2; 17.0; 18.8; 22.6; 22.5; 23.0
- Liquid Assets to Short Term Liabilities: 23.1; 16.7; 27.1; 24.5; 25.6; 27.2; 34.1; 35.1; 35.3

### Annex I — Debt Sustainability Analysis: Key Findings and Policy Implications
- Summary assessment
  - Despite relatively low debt level, liquidity-based indicators—driven by low revenue mobilization—remain concerning; the interest bill represents a high share of government revenue (but low relative to GDP).
  - Nigeria’s low debt-to-GDP ratio is highly vulnerable to shocks; stress scenarios confirm vulnerability to a low growth/wide primary deficit scenario.
  - Interest-to-revenue ratio is particularly vulnerable to a real interest rate shock but remains sustainable.
  - A comprehensive policy package, including fiscal consolidation based on non-oil revenue mobilization over the medium term, is essential to reduce the interest payments-to-revenue ratio to pre-2019 levels.
- Baseline projections and fiscal metrics
  - Gross public debt: about 29 percent of GDP in 2019.
  - Gross financing needs of the general government: 5.1 percent of GDP (2019).
  - Federal government interest payments absorbed about 58 percent of federal government revenue in 2019.
  - Public debt-to-GDP ratio (including general government debt, CBN overdrafts, CBN financing of power sector and AMCON debt): forecast to stay around 36 percent by 2025.
  - Primary deficit: projected to gradually improve by end of projection period due to expected recovery of oil revenue and some improvements in non-oil revenue.
  - Public debt includes non-interest-bearing promissory notes (about 2.6 trillion naira from 2018 through 2022) but excludes state-owned enterprise debt.
  - Contingent liabilities: explicit contingent liabilities of the federal government are around 3 percent of GDP; additional non-guaranteed liabilities and PPP/energy-related contingencies pose further risks.
- Financing needs and interest dynamics
  - Medium-term average financing needs: about 9.2 percent of GDP.
  - Interest payments are less than 3 percent of GDP throughout projection period.
  - Interest payments projected reduction: from 96 percent of FG revenue in 2020 to about 80 percent by 2025 (reflecting improved revenue collection, including from oil).
  - When accounting for extrabudgetary revenue and state and local government revenue, the ratio would remain below 30 percent.
- Stress test outcomes
  - Debt and gross financing needs do not worsen significantly under stress scenarios, but liquidity indicators deteriorate.
  - Interest rate shock: FG interest-to-revenue ratio increases to 145 percent.
  - Standardized combined macro-fiscal shock: ratio increases to 172 percent.
  - Contingency shock (increase non-interest expenditures by 10 percent of the banking sector, lower growth by one standard deviation in 2020 and 2021, increasing inflation and interest cost): ratio increases to about 101 percent.
  - Considering general government, total interest payments will not exceed 55 percent by 2025 under all shocks considered.
  - Real exchange rate shock impact is limited due to low stock of foreign currency denominated debt.
- Uncertainty and realism
  - Fan charts: symmetric fan chart width about 25 percent of GDP by end of projection period, indicating significant uncertainty.
  - Asymmetric fan chart: extreme downside shock constraining growth to zero results in an upward-sloping debt path; balance of risks skewed to downside.
  - Forecast track record: pre-2017 projections showed optimistic bias; forecast accuracy improved since 2017 but remains dependent on oil price volatility.
- Heat map and risks
  - Heat map: except for a few indicators, not signaling broad risks to debt sustainability.
  - Principal risks identified: market perception, contingent liability shock, and foreign currency debt.

### Selected DSA Indicators and Projections (from Figures and Tables)
- Nominal gross public debt (percent of GDP): 17.6 (2018); 27.7 (2019); 29.1 (2020); 34.8 (2021); 36.3 (2022); 37.4 (2023); 37.3 (2024); 36.9 (2025); 36.3 (2025 shown twice in graphical series)
- Public gross financing needs (percent of GDP): 2.9 (2018); 4.5 (2019); 5.1 (2020); 9.6 (2021); 12.4 (2022); 9.9 (2023); 8.1 (2024); 7.9 (2025); 7.5 (2025)
- Real GDP growth (percent): 4.7 (2018); 1.9 (2019); 2.2 (2020); -3.4 (2021 baseline year noted); 2.4 (2022); 2.6 (2023); 2.4 (2024); 2.5 (2025)
- Inflation (GDP deflator, percent): 7.8 (2018); 10.2 (2019); 10.4 (2020); 10.9 (2021); 12.2 (2022); 11.4 (2023); 11.2 (2024); 10.9 (2025); 10.8 (2025)
- Effective interest rate (percent): 7.5 (2018); 7.5 (2019); 6.8 (2020); 7.4 (2021); 5.6 (2022); 5.9 (2023); 6.0 (2024); 6.5 (2025); 7.1 (2025)
- Adjusted effective interest rate (percent): 7.5; 8.3; 7.6; 8.2; 6.8; 7.6; 8.3; 9.6; 11.2 (panel values summarized)

*Sources: Authorities' data and IMF staff estimates and projections.*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Impact of the COVID-19 pandemic — macroeconomic outlook
- Preliminary assessment: contraction in real GDP of -3.4 percent in 2020, a 6.5 percentage points drop relative to previous estimate.  
- Current account: projected deficit of about 3.3 percent of GDP in 2020.  
- External pressures noted: expected weakening of remittances and capital inflows, pressure on international reserves, and intensified exchange rate pressures.  
- Overall urgent balance-of-payments (BOP) need estimated at 3.2 percent of GDP (staff statement).  
- Downside risks emphasized: further collapse in oil prices and protracted containment measures could materially worsen real and financial sector outlook and financing prospects.

### External position and exchange rate policy actions
- Exchange rate adjustment: official rate changed from N305/$ to N360/$.  
- Convergence of CBN’s various FX windows to the Investors and Exporters (I&E) window rate; I&E window allowed to move with market forces.  
- Gap between CBN’s minimum and maximum exchange rates reduced from 20 to 5 percent—described as a major step toward exchange rate unification.  
- Policy commitment: maintain a more unified and flexible exchange rate regime operating in a market-determined manner; CBN to intervene only to smooth large FX fluctuations.  
- Despite greater FX flexibility, an external financing gap of US$14 billion will remain.

### Fiscal impact, emergency costs, and financing needs
- Tax revenues: projected to fall short of target by about 3 percent of GDP in 2020.  
- Estimated cost of the pandemic emergency response plan: at least US$1.4 billion (0.3 percent of GDP) in 2020.  
- Combined effect: these factors will increase the overall deficit by about 2 percent of GDP in 2020.  
- Government financing gap: additional US$11 billion (3 percent of GDP) required in 2020 to close the fiscal financing gap resulting from the shock.  
- Immediate fiscal measures noted: establishment of a N500 billion COVID-19 Crisis Intervention Fund; intention to reduce non-essential capital spending by about 1 percent of GDP while reviewing the 2020 budget.

### Request for IMF emergency financing (RFI) and other external support
- IMF request: maximum emergency financing under the Rapid Financing Instrument (RFI), SDR 2,454.5 million (about US$3,398 million), corresponding to 100 percent of quota.  
- Purpose: remedy immediate liquidity needs from twin shocks and help fill projected fiscal financing and balance-of-payments gaps in 2020.  
- On-lending arrangement: RFI purchases will be on-lent by the central bank to the Treasury; a Memorandum of Understanding (MoU) between the central bank and the government will specify conditions of this operation, following IMF policy and guidance.  
- Other external support: US$3.6 billion already committed this year by the World Bank, AfDB, IsDB, and Afreximbank; authorities actively seeking additional development partner support.

### Immediate policy responses and regulatory measures
- High-level coordination: Economic Sustainability Committee chaired by the Vice President and work by the Presidential Economic Advisory Council (PEAC).  
- Fiscal measures: establishment of stimulus package to provide relief to taxpayers, incentivize employers to retain staff, income tax relief, payroll tax rebate for civil service employees, import duty waivers for medical supplies, postponement of planned electricity tariff increase.  
- Banking sector measures (CBN): regulatory forbearance to allow loan restructuring for affected but fundamentally sound borrowers; encouragement for banks to reduce interest rates on development-related loans from 9 percent to 5 percent; creation of a credit facility for SMEs and households; facilitation of a one-year moratorium on new loans for specific sectors; facilitation of a dedicated fund for rebuilding critical infrastructure.  
- Monetary and exchange rate stance: targeted to meet price stability objective while complementing crisis measures; continued strengthening toward full exchange rate unification and flexibility per the Economic Recovery and Growth Plan.

### Post-pandemic medium-term commitments and structural reforms
- Fiscal consolidation path: revert to planned medium-term fiscal consolidation once the crisis passes, with the objective of increasing revenue to 15 percent of GDP through further VAT reforms, increases in excises, and removal of tax exemptions.  
- Fuel policy: automatic fuel price formula introduced and fuel subsidies eliminated to prevent re-emergence.  
- Fiscal targets: reduce Federal Government deficit to under 3 percent of GDP and eliminate recourse to central bank financing by 2025 (in line with the Fiscal Responsibility Act).  
- Financing the deficit: increase domestic borrowing limits in the supplementary budget to make use of favorable low domestic yields; securitize existing stock of overdrafts held at the CBN.  
- Power sector reforms: cap electricity tariff shortfalls this year to N380 billion and move to full cost-reflective tariffs in 2021, with World Bank technical assistance and financial support.  
- Banking supervision: reinvigorate on-site and off-site supervision to sustain financial sector stability.  
- Structural reform focus: accelerate structural reforms—particularly in the power sector—to support a diversified private-sector led economy post-pandemic.

### Transparency, anti-corruption, and safeguards
- Anti-corruption and governance commitments: strengthen the Federal Audit Board; strengthen asset-declaration framework; fully implement risk-based approach to AML/CFT supervision; ensure transparency of beneficial ownership of legal persons.  
- Emergency spending transparency measures: (i) create specific budget lines to track emergency response expenditures and report funds released and expenditures incurred monthly on the transparency portal (http://opentreasury.gov.ng/); (ii) publish procurement plans and procurement notices for all emergency response activities—including names of awarded companies and beneficial owners—on the Bureau of Public Procurement website; (iii) publish, no later than three to six months after the end of the fiscal year, the report of an independent audit into emergency response expenditures and related procurement processes, to be conducted by the Auditor General of the Federation with necessary resources and consultation with external/third party auditors.  
- IMF safeguards: commit to undergoing a new safeguards assessment by the Fund; authorized IMF staff to hold discussions with external auditors and provided access to the CBN’s most recently completed external audit reports.  
- Exchange and payments commitments: do not intend to introduce measures that would exacerbate balance-of-payments difficulties; do not intend to impose new or intensify existing restrictions on payments and transfers for current international transactions, trade restrictions for balance-of-payments purposes, multiple currency practices, or enter into bilateral payments agreements inconsistent with Article VIII.

### Conclusion and engagement with IMF
- Authorities seek early approval of financial assistance under the RFI to help keep the Nigerian economy on a strong path and sustain poverty reduction efforts.  
- Authorities reaffirm willingness to remain engaged with the IMF for policy advice and technical assistance.  
- Authorization granted for IMF to publish the letter and the staff report for the RFI request.

*Source: Appendix I. Letter of Intent, April 21, 2020 (with associated staff statement dated April 28, 2020).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1ngaea2020001.pdf_